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India’s 2025-26 Budget will be “broadly neutral” for growth prospects, and while its projections “appear realistic”, revenues could see some modest slippages amid the moderation in growth, warranting further restraint on expenditure, Fitch Ratings said on Monday.
On the Centre’s new fiscal consolidation goal of 50% (plus or minus 1%) debt to GDP by 2031, the rating firm said that increased confidence that the government can adhere to this medium-term fiscal framework and keep debt firmly on a downward path, would be positive for the sovereign rating over time. “Still, the pace of debt reduction is gradual, which leaves open downside risks from a large economic shock,” cautioned Jeremy Zook, director and primary sovereign analyst for India at Fitch Ratings.
“The budget will be broadly neutral for growth in our view, as the consumption boost from tax cuts, along with sustained levels of capex spending should balance the contractionary thrust from deficit reduction,” he said.
While the fiscal deficit target of 4.4% of GDP for next year “highlights the government’s ongoing commitment to deficit reduction even amid a recent slowing of economic activity”, Mr. Zook said that policy tradeoffs between growth and fiscal deficit reduction objectives are becoming more challenging.
“Revenues are not likely to be as buoyant in the coming years, which means expenditure restraint, even around capex spending, will likely be key for keeping deficits in check,” he remarked.
Published – February 03, 2025 11:25 pm IST
